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FCA ESG rules: the next deadline for UK private fund managers | Goodwin

In our previous client alert, Back to work: the FCA’s 2022-2023 priorities for private money managers, we mentioned the need for FCA-authorized private money managers with assets under management (At M) in excess of £5 billion and which are subject to the FCA rules and guidelines contained in the FCA Environmental, Social and Governance Sourcebook (ESG rules provided for in PS21/24), be able to comply as soon as January 1, 2023.

The result that compliance is supposed to achieve is the publication of climate-related information under ESG rules, which managers will have to provide by June 30, 2024.

For large managers, with assets under management of more than £50 billion (and asset owners with £25 billion or more of assets under management or under administration in relation to their activity in the field of application), to which the ESG rules already apply, having entered into force on January 1, 2022, the deadline for disclosure is June 30, 2023.

The FCA reiterated its emphasis on ESG for asset managers in its recent letter to the dear CEO (as also referenced in our alert), in which it notes that it expects those within the scope of ESG rules are considering the steps they need to take to make 2023/24 disclosures. In addition, ESG themes feature in the FCA’s Permitted ESG and Sustainable Investment Funds: Improving the quality and clarity of the July 2021 letter, in particular that managers offering ESG funds and investments should expect to be subject to review to ensure that marketing materials accurately describe their product, with funds offering clear and consistent information.

In this alert, we examine the impact of ESG rules on private fund managers. Once fully implemented, these rules will apply to 140 asset management companies and 34 asset owner companies, representing £12.1 trillion of assets under management and administration in the UK and capturing 98 % of the UK asset management market and held by UK asset owners. We conclude with some general action points.


The ESG rules apply to full UK AIFMs and approved small UK AIFMs, as well as managers who provide portfolio management, defined as comprising:

  • Investment management
  • Private equity or other private market activities consisting either of advising on investments or of managing investments on a recurring or continuing basis under an arrangement whose primary objective is investment in unlisted securities

The obligations will therefore fall on FCA-licensed firms that advise on private equity investments and not just those that manage such investments.


The UK government has chosen to align disclosure requirements with the principles set out in the Financial Stability Board’s task force on climate-related financial disclosures (TCFD). In general, ESG rules impose the following disclosure requirements:

  1. A TCFD entity reportin which a company provides or explains how, as an entity, it takes into account climate-related risks and opportunities relating to all assets managed on behalf of clients.

    A firm should reference any significant differences in its approach to the governance, strategy or risk management pillars of the TCFD for specific investment strategies, asset classes or products (or this may be referenced in the report on the affected TCFD product). A company is also required to disclose (as part of its TCFD strategy disclosure) its transition plans. TCFD entity reports must be signed by a member of senior management confirming that the disclosures comply with ESG rules.

  2. A TCFD product reportwhere a company provides a core set of TCFD-aligned metrics (on greenhouse gas emissions, carbon emissions, carbon footprint, and weighted average carbon intensity) that it supplements with metrics supplements where possible.

    For the first year of reporting, the metrics should be contextualized (including explaining how the metrics should be interpreted and their associated limitations, e.g. any particular assumptions or approximations used – see below for more on this) and from there historical annual calculations of base metrics provided.


Both sets of TCFD reports should be posted annually in a prominent place on a company’s website. However, for UK unlicensed and unlisted AIF Hedge Fund Managers (as well as bespoke account managers, portfolio managers and investment advisers), the TCFD Product Report is not public. and should only be made available once a year on request when a client needs the product-level information for their own (or their clients’) climate-related financial disclosure obligations. In this case, reports must be provided at a single point of reference consistent with public disclosures, or on a date agreed between the client and the company, and in a “reasonable” format (noting that a model of the industry can follow) from July 1, 2023/24. While allowing managers to streamline reporting on their clients’ TCFD products, this of course does not reduce the product level information they have to produce (pre-contractual, on the website and annually), for example under European legislation on sustainable finance.


To reflect industry concerns about data availability, consistency and reliability (for example, how to compare information provided when calculation methodologies vary across metrics), ESG rules allow companies to Use surrogate data or assumptions supported by adequate explanations and methodologies. The FCA expects the underlying data shortcomings and methodological challenges to be transitory and only applicable to certain asset classes (e.g. asset-backed securities and currencies).


Companies can refer to relevant information in another report (for example on a grouped or consolidated basis, by a delegated manager or under a TCFD-aligned listing rule) if justification is given, information and hyperlinks are clearly marked and material deviations explained. Delegating companies must also explain in their TCFD entity reports the reason for selecting a delegate, including how climate-related issues were considered in the selection and reliance on services/products.


In order to ensure that they are able to provide the information required by the ESG Rules, managers must therefore:

  • Proactively engage with ESG rules and begin to review, identify and collect necessary data and metrics and prepare required information
  • Note that information provided under ESG rules may be different from other disclosure requirements to which it is subject, whether under EU sustainable finance regulations or UK listing rules or other business requirements.


Managers should also monitor future developments, as ESG rules are likely to expand over time to encompass broader sustainability themes and rules (beyond climate). Initially, we would expect this expansion to encompass the results of an ongoing FCA consultation on sustainability disclosure requirements (SDR) and product labelling, set out in DP21/4, as well as the UK Green Taxonomy (which is under development).

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